CME: Hogs and Pigs Report No Big Shock

by 5m Editor
28 December 2011, at 7:01am

US - Friday’s quarterly Hogs and Pigs report from USDA is being called neutral by industry analysts — a judgment we agree with for the nearby and intermediate terms but would find a bit negative for the deferred months, write Steve Meyer and Len Steiner.

This was an interesting report in that it was released while CME Group trading pits were still open on Friday. Most LH contracts gained $0.40 to $0.60 just after the report’s release, suggesting that the market may have seen it a bit bullish. The reaction was not large but the report numbers were not much different than expected, so this was not much of a test of the impact or releasing while the pits were still open.

We can’t recall the Hogs and Pigs report ever before being released while pits were open but electronic markets have made the concept of "after the markets close" rather quaint it seems since they have been trading at the time of release for several years. Is this reaction any different from those of electronic markets? We doubt it. Let’s try it with a shocker report and see what happens. Anyone really want to do that?

Some highlights of the report are:

  • There were no big shocks. Virtually all of the actual numbers were within 1 per cent of the analysts’ pre-report estimates. These numbers were substantially already "in the market."

  • The report passes the litmus tests. The 180-and-over inventory was 0.4 per cent lower than last year. Slaughter is 0.3 per cent lower this December (thru 17 weekdays and 4 Saturdays) versus the same number of weekdays and Saturdays last year — very close. The percentage changes for September-November farrowings, Sep- Nov pigs per litter and September-November pig crop all fit together. No adjustments for imports of Canadian market hogs or feeder pigs are necessary since this year’s numbers are reasonably close to last year’s.

  • The breeding herd of 5.803 million head was only 0.4 per cent larger than last year. That is just half the year-on-year growth rate expected by analysts and represents growth of just 25,000 sows since 1 September. Reactions to profits have remained modest even since the size of the corn crop has been known.

  • The market herd was 1.7 per cent higher than last year with all of the increase coming in pigs weighing 179 lbs. or less. Those pigs will begin reaching slaughter in January and will lead to higher 2012 weekly totals through March.

  • December-February farrowing intentions fit the breeding herd very well and suggest higher hog numbers through August but March-May intentions were significantly lower than expected and somewhat lower than a 100.4 per cent breeding herd would suggest. If this farrowing level and the 1.1 per cent litter size growth rate hold, Q4 slaughter will be almost exactly the level of this year. That is very good given the level of slaughter capacity — which we have tested on several occasions this fall.

  • Average litter size of 10.02 pigs was record large for the September- November quarter. The 1.1 per cent growth rate leaves the average litter size growth since March 2008 at 1.91 per cent per year.

Further Reading

- You can view the USDA Quarterly Hogs and Pigs Report by clicking here.